Peter Lewis, chief executive of the institute, says that plans for the cap have already had a negative impact on philanthropy

Peter Lewis

The government should replace its proposed cap on tax relief on donations with a system that allows charities to reclaim all the tax paid by higher-rate taxpayers, according to the Institute of Fundraising.

The IoF said yesterday that 77 per cent of 687 of its members who responded to a survey favoured a system in which charities could reclaim all the tax paid by a higher-rate-paying donor under Gift Aid, in the same way as they can reclaim all the tax paid by a basic rate taxpayer.

Under the existing system, higher-rate taxpayers can reclaim a portion of the tax paid on donations to charity themselves.

George Osborne, the Chancellor of the Exchequer, announced in the Budget in March that he planned to introduce a new cap on tax reliefs, which means that wealthy individuals will be able to claim tax back only on donations of a quarter of their income or £50,000, whichever is higher, from April 2013.

The measure is expected to cost the charity sector tens of millions of pounds in donations from major philanthropists.

Peter Lewis, chief executive of the institute, said: "We oppose the government’s proposal to introduce a cap on income tax relief on charitable donations. Our members have told us clearly that this has already had, and will continue to have, a negative impact on philanthropists’ willingness to give to vital charitable causes.

"The government should treat higher-rate taxpayers in exactly the same way as standard-rate taxpayers and allow the charity to reclaim all of the tax paid against their donations."

He said this would remove any possibility of tax avoidance, because the money paid over would be collected by a registered charity.

The proposal was first put forward by the British Red Cross, which has said that it supports the idea of charities reclaiming all of the tax attached to a donation.

Lewis said the IoF was now seeking discussions with the government about how its proposal could be implemented.

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